Havana,14 Mar. (AFP) – Cuba has begun reconciling with the Paris Club of creditor nations after a nearly three decade-long divorce, moving to put its financial house in order as it opens up to the world economy.
“We are going to finish the reconciliation in a few more weeks, and some weeks or months later we will have a negotiation,” said Bruno Bezard, the club’s chair and the head of the French Treasury. “We have advanced rapidly.
There is a will from Cuba and its creditors’ part to complete this work,” said Bezard, who was in Havana with French officials preparing for President Francois Hollande’s May 11 visit to the island. The Paris Club is an informal group of public creditors created in 1956.
Its members include officials from 20 industrialized countries who meet to try to resolve payment problems of debtor nations. Cuba’s debt is expected to be on the agenda for the visit by Hollande, the first by a French president, and it is possible part of it will be forgiven, something Russia, Japan and Mexico have done in recent years.
Bezard estimates Cuba’s debt with the Paris Club at $15-16 billion, of which $5 billion is owed to France. Cuba stopped servicing its debt with the Paris Club in 1987, alleging “interference” in its domestic political affairs by some of its creditors. A year earlier it had renegotiated its 1982-86 debt payments.
In 2001, Havana proposed a new renegotiation to find a “reasonable solution,” but that failed due to what Cuba’s Central Bank said were the “totally unacceptable conditions” demanded by the creditors. The $8 billion dollar debt that was at the center of the 2001 negotiations, and which Cuba declared “immobilized,” will be at the center of the coming Paris Club negotiations.
– From ‘unpayable’ debt to repayments – Cuba’s rupture with the Paris Club coincided with a debt crisis in Latin America and a campaign by then president Fidel Castro to declare the debt “unpayable.”
The entire size of the Cuban debt is not known, but is believed to exceed $22 billion. But President Raul Castro, who took over from his brother Fidel in 2006, began normalizing relations with creditors in 2009 as part of an effort to revamp the island’s Soviet-style economy. The objective has been to generate confidence, gain access to credit and attract foreign investment.
Cuba begins a new round of talks in Havana on Monday with the United States over restoring diplomatic ties between the two countries. The restoration of ties could eventually help lead to the lifting of the US embargo of the nation and further open Cuba up to the global economy. “For Cuba, it is essential to put in order its international financial commitments.
That would be the logical step in the policy of more prudent management of spending in effect since 2009,” said Cuban economist Pavel Vidal, at the Universidad Javeriana in Cali, Colombia. Former economy and finance minister Jose Luis Rodriguez said Cuba paid an average $3.2 billion a year to service its debt between 2010 and 2014, which represented 4.7 percent of Cuba’s GDP.
“This policy of control over expenditures and the other reforms underway allows Cuba to negotiate with international creditors on the basis of financial credibility which it has been rebuilding little by little,” said Vidal. The experts say putting Cuba’s finances on sounder footing should enable it to move away from policies that impede economic growth and consumption, to more expansionary policies.
“Receiving new financing as a result of the renegotiation of the foreign debt helps ensure that the change in economic policy does not affect macroeconomic balance. “It would be better yet if not only loans come in, but investments that bring new technologies and access to the global value chains,” said Vidal.